Q1 in Review: The Top 3 IPO Trends

Tech, real estate and healthcare led the way

It was a great quarter for IPOs … well … and for the market overall. The S&P 500 enjoyed a solid double-digit climb in the first three months of the year, while the Nasdaq wasn’t far behind with gains just over 8%.

In fact, a total of 29 companies hit the market during the start of the year and the average return — based on initial offering prices — was just under 20%. In fact, there were only five deals that posted losses, with the worst being KaloBios Pharmaceuticals (NASDAQ:KBIO). It’s dropped an ugly 25% or so.

For the most part, though, Q1 came with lots of good news. With that in mind, let’s take a look at three big themes for IPOs thus far.

Tech Is On Fire

Tech was by far the best sector, with a total of eight IPOs that generated an average return of nearly 20%. For the most part, cloud operators continued to lead the way and garner lots of interest. Two big names in that space were Marin Software (NYSE:MRIN) and Model N (NYSE:MODN).

But the top deal of the quarter wasn’t in the cloud space at all. Instead, it was actually a 3D printer company: ExOne (NASDAQ:XONE). Its initial gain was just under 86%.

That’s especially impressive considering that, just a few years ago, ExOne was a mess. Luckily, the company caught the interest of S. Kent Rockwell, a top venture capitalist and entrepreneur. He wrote a check for $41 million for the company, put in place a top-notch management team — which focused on the lucrative industrial market — and initiated a smarter emphasis on research and development.

The moves paid off big, as the company snagged marquee customers like Ford (NYSE:F), Tesla Motors (NASDAQ:TSLA) and Boeing (NYSE:BA). And for 2013, the company thinks its revenues will grow between 65% to 80%.

Real Estate Is Back

While tech was the best sector, real estate sure wasn’t far behind. There were six offerings in the space and the average return was over 18%.

Surprisingly, the best performer was an old-line company, Boise Cascade (NYSE:BCC). The shares have gained 61% in all.

BCC sells building materials like plywood, lumber, oriented strand board and engineered wood products. It has over 4,500 customers, which include wholesalers, home improvement centers, lumber yards and industrial converters.

Boise is seeing huge demand for its products because of the boom in residential construction … and there has been a pick-up with remodeling as well.

Another key to BCC’s success has been its long-term focus. During the real estate depression, the company continued to invest heavily in its business — by adding manufacturing facilities and distribution centers, for example. There were also big expenditures on state-of-the-art equipment, which has allowed for better quality products.

Healthcare Looks Healthy

While the returns for healthcare names were not as strong as for tech or real estate, they were still solid. In the quarter, the six transactions averaged a return just under 10%.

One of the top deals was Zoetis (NYSE:ZTS), which posted a gain over 28%. The company raised $2.2 billion in its IPO and was actually the biggest deal since Facebook (NASDAQ:FB) came public in May 2012.

Zoetis is the No. 1 player in the animal health category and boasts more than 300 vaccines and drugs. While growth has been somewhat slow — with revenues up only 1.7% to $3.16 billion for the first nine months of 2012 — the company’s long-term prospects look strong.

See, Zoetis focuses on treatment for livestock, which should see lots of demand in emerging markets. In fact, the company has a presence in 120 countries and a salesforce of 3,400.

Based in Silicon Valley, Tom Taulli is in the heart of IPO land. On a regular basis, he talks with many of the top tech CEOs and founders trying to find the next hot deals and finding out which start-ups are stinkers.

A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.

Tom is routinely quoted in the media about upcoming deals with his interviews on CNBC and Bloomberg TV, but he is eager to take your questions too. You can message him on Twitter at @ttaulli. And feel free to weigh in via the comments section on any of his IPO Playbook posts.